The term Tier Supplier often comes up in conversation when discussing the complexities of the supply chain. As Tier Suppliers are particularly relevant within the automotive industry, we will explain this term and discuss an example in reference to the automotive industry.
Structure of a supply pyramid
A supply pyramid describes the structure of a supply chain with the end product producer (OEM) at the top. OEM stands for Original Equipment Manufacturer. The suppliers of modules and systems are directly underneath the OEM. These suppliers are supplied by component suppliers who in turn buy their goods from parts suppliers.
Suppliers are referred to as Tier 1, Tier 2, Tier 3, Tier-n suppliers, depending on their distance from the OEM. This reflects the sub-supplier structure.
Example from the automotive industry
The automotive industry is characterized by complex and closely interlocked logistics chains. Instead of producing all their components in-house, automotive manufacturers procure the individual modules from specialist suppliers. These suppliers will in turn assemble components supplied by specialized component suppliers. The suppliers of individual parts are found on the third tier.
These boundaries are not always defined that clearly. A supplier may thus be both Tier 1 and Tier 2 – they may, for instance, deliver antenna modules to both OEMs and Tier 1 suppliers.
The following diagram illustrates an example of an automobile supply chain.
Challenges along the supply chain
Close interlinking between OEMs and their individual Tier Suppliers pose special challenges to the smooth operation of processes. The horizontal integration of many different suppliers and their own suppliers will, for instance, demand that required quantities are communicated fast and effectively if the supply of modules, components and individual parts is to be ensured. This is a critical factor in success especially with just-in-time and just-in-sequence processes. Electronic data interchange is used to ensure communication, whilst the concepts of delivery schedule and just-in-time deliveries may for instance be deployed. Standardization organizations such as ODETTE or VDA have already developed many useful standards to allow efficient operation of automobile supply processes.
Apart from logistics messages such as delivery schedule, despatch advice, etc., continuous digital engineering is essential. This will, for instance, include the exchange of construction data such as CAD (Computer-aided design) drawings and the like.
Do you have questions about logistics in the automotive industry or would you like to implement an EDI based process? Please contact us – we look forward to hearing from you!